US-EU: Scenario of Complete Ban on Western Exports to Russia

The US and its allies are considering imposing a total ban on most exports to Russia, which could be a significant increase in economic pressure on President Vladimir Putin and his country’s war against Ukraine, reports Bloomberg.

G7 officials are discussing the idea ahead of the group’s leaders’ summit in Japan in May, according to people familiar with the matter, and the aim is to get European Union member states to implement these sanctions. It should be noted, however, that the proposal is still under discussion and subject to change.

According to Bloomberg, the approach being discussed by diplomatic envoys would lift the existing sanctions regime and impose total export ban. If the G7 leaders approve the proposal at the summit, it will be necessary to agree on exactly what will be excluded, and it is very likely that medicines and agricultural products, including food, will be excluded, one of the sources told Bloomberg.

Difficulties in implementing such a solution

However, there are potentially serious obstacles to the implementation of such a measure. In order to take effect in EUthe new criteria must be accepted by all members of the bloc, and this will trigger a new round of intense consultations or even disputes, given the potential ruin of companies still exporting goods to Russia, along with the risk of retaliation from Moscow.

If a near-complete export embargo is implemented, most of the remaining trade flows from these countries to Russia will decline. A spokesman for the US National Security Council declined to comment on the prospects for such a move.

To date, the sanctions have almost halved the value of EU and G7 exports to Russia, with restrictions on everything from electronics to luxury goods. However, according to the Geneva-based Trade Data Monitor, Russia continues to import goods from Europe, the US, Canada, and Japan worth about $66 billion.

G7 members are concerned that this is too much help for the Russian economy, that Moscow is finding ways around sanctions to import goods through third countries. The G7 and the EU have imposed 10 rounds of sanctions, but they hit the EU rather than Russia.

Even closer to China?
Russia has responded to the sanctions with its own export bans and periodic cuts in energy supplies to Europe. The EU will be particularly vulnerable to restrictions on commodities such as palladium, copper, iron and nickel. And an almost complete ban on the export of European goods to the Russian Federation may bring Moscow even closer to China, where Russia will receive an alternative to goods subject to sanctions.

Moscow has stopped publishing import data, but several international observers and governments are monitoring Russian exports and customs data.

Germany, Italy and Poland remain the top three European exporters of goods to Russia, according to Trade Data Monitor. In the G7 countries, the greatest damage can be done to manufacturers cars, chocolate, beer, shoes, flowers and cosmetics.

Even with existing barriers, Russia manages to import some of the components introduced by the US and Europe through third countries. This forces the G7 and the EU to pay increased attention to countering the circumvention of sanctions, in particular by strengthening control over so-called dual-use goods that can serve both military and civilian purposes.

Those efforts include exerting diplomatic pressure on other countries, expanding restrictions on all materials found in Russian weapons in Ukraine, and prosecuting companies that might help Moscow – intentionally or otherwise – bypass restrictions. Earlier this month, the US imposed sanctions on dozens of organizations in 20 countries that it accused of helping Moscow circumvent sanctions. At the same time, European countries are counting on imports from Russia of certain commodities such as palladium, copper, iron and nickel.

Stepping up efforts to limit Putin’s economic influence is likely to be one of the key elements of the G-7 summit. The leaders are also expected to make progress on developing a mechanism to track Russian diamonds across the border, which will eventually pave the way for more trade restrictions, Bloomberg reported.

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